American States Water Company

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's first quarter 2023 results. The call is being recorded. If you would like to listen to a replay of this call, it will begin this afternoon at 5 p.m. Eastern Time and run through Thursday, May 18, 2023 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. This call will be limited to an hour. Presenting today from American States Water Company are Bob Sprouse, President and Chief Executive Officer, and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprouls, President and Chief Executive Officer of American States Water Company.

Thank you, Gary. Welcome, everyone, and thank you for joining us today. I'll begin with some brief comments on the quarter. Eva will then discuss some financial details, and then I'll wrap it up with updates on regulatory activity, ASUS, dividends, and then we'll take your questions. I'm pleased to report that our adjusted earnings for the first quarter of 2023 were 13 cents per share higher than adjusted earnings for the first quarter of 2022. The higher earnings performance in 2023 was aided by the receipt of a proposed decision in Golden State Water Company's Water General Rate Case, or GRC, from the California Public Utilities Commission, or CPUC, during April, and strong earnings at our contracted services business, American States Utility Services, or ASUS. The proposed decision allows us to continue investing in the utility infrastructure to provide safe and reliable water services for the communities we serve. It sets new water rates for the years 2022 through 2024 and is retroactive to January 1st, 2022. We remain committed to spending $140 to $160 million this year in infrastructure investments at our regulated utilities, fortifying our water and electric systems to serve our customers for generations to come. ASUS also performed $18.9 million of construction work during the quarter and is on pace to meet its targeted earnings contribution of $0.45 to $0.49 per share for 2023. Eva will discuss the quarterly earnings and liquidity, and I'll turn the call over to her.

Thank you, Bob. Hello, everyone. Let me start with our first quarter results. Consolidated earnings as recorded were $0.93 per share as compared to $0.38 per share for the first quarter of 2022, an increase of $0.55 per share. Included in the results of the first quarter was $0.36 per share related to the impact of retroactive rates found the proposed decision in the Water General Rate Case for the full year of 2022, of which $0.08 per share relates to the first quarter of 2022. The $0.55 per share increase also included a favorable variance of $0.06 per share from investment held to fund a retirement plan. We recorded gains on this investment of $1.6 million for the quarter, as compared to losses of $1.7 million in 2022. Excluding these two items, adjusted consolidated earnings for the quarter were $0.34 per share as compared to adjusted earnings of $0.41 per share for the first quarter of last year, an increase of $0.13 per share. For our water utility subsidiaries, Golden State Water Company, reported earnings were $0.74 per share as compared to $0.23 per share for the first quarter of 2022, a $0.51 increase. Both items just discussed affected earnings at a water segment. So factoring the same effect from the two items, adjusted earnings for the first quarter at a water segment were $0.35 per share, which was an increase of $0.09 per share as compared to adjusted earnings of $0.26 per share for the same period in 2022. Since 2023 is the second year of the GRC, an estimated second year rate increases effective January this year has been accounted for in the quarter. The $0.09 per share increase in 2023 adjusted earnings Largely, we present the difference from the 2021 adopted rates and the 2023 estimated second-year increases for the first quarter, partially offset by increases in operating and interest and other expenses. Our electric segments earning were $0.06 per share for the first quarter as compared to $0.07 per share for the same period last year. The decrease primarily related to not having new rates in effect yet for 2023, as we await the pending electric GRC that will set new rates for 2023 through 2026, while also experiencing continued increases in overall operating expenses and interest costs. When a decision is issued in the electric GRC New rates are expected to be retroactive to January 1, 2023, and cumulative adjustments will be recorded at that time. Earnings from our contracted service segment increased 7 cents per share for the quarter, which Bob will discuss later. Consolidated revenue for the first quarter increased by $52.8 million as compared to the same period last year. Revenue for the water segment increased by $38.8 million, which includes the impact of retroactive new rates for the full year of 2022 of $30.3 million, and the estimated 2023 revenue increases of $8.7 million for the three months ended March 31 this year. The increase in electric revenue was primarily attributed to a vice-ledger filing and an expense allocation true-up as a result of the proposed water GRC decision. The increase in the general office expenses allocated to the electric segment also include a corresponding offsetting increase in adopted electric revenues, resulting in no impact to earnings. there was an increase in revenue of $13 million from our contracted services. Turning to slide 9, looking at total operating expenses other than supply costs, consolidated expenses increased $12.2 million as compared to the first quarter of 2022. The increase was largely due to an increase in construction costs at our contracted services segments resulting from higher construction activity due to timing differences when construction work was performed in 2023 as compared to the first quarter last year, and higher operation administrative and general and depreciation expenses. The proposed decision in the Water GRC issued in April also approved overall higher composite depreciation rates based on a revised depreciation study. The increase in composite depreciation rates increases the adopted water revenue requirements with a corresponding increase in adopted depreciation expense resulting no impact to net earnings. Interest expense net of interest income increased by $2.3 million due to higher average interest rates during the quarter and increases in overall borrowing level. Other income net of other expenses increased by $2 million due primarily to gains on investment held for retirement benefit plans, partially offset by increasing the non-service cost component for Golden State Waters benefit plan. Slide 10 shows the adjusted EPS bridge comparing the first quarter of 2023 and 2022. Turning to liquidity on slide 11, net cash provided by operating activities was $7 million as compared to $38 million for the first quarter of 2022. During the first quarter of last year, our regulated utility received $9.8 million in COVID-19 relief funds from the state of California to provide assistance to customers for delinquent water and electric customer bills incurred during the pandemic. There were no relief funds received this year. The decrease in operating cash flow was also due to a 17% decrease in billed water consumption, as well as the continued delays in receiving the WaterGRC final decision. Once the final decision is received, Golden State Water will request recovery through a surcharge of all retroactive revenue accumulated since January 2022. In addition, we will also file for the second year rate increases for 2023. In January 2023, Golden State Water received $130 million of proceeds from the issuance of unsecured private placement notes. The proceeds were ultimately used to partially pay down AWR's credit facility and further support the Golden State Waters capital program. AWR's credit facility with a borrowing capacity of $280 million expires in July 2023 as a result of an amendment that extended the maturity date by two months. We requested the extension to provide us adequate time to possibly put in place two new credit agreements. SMT provides the same credit rating for both Consolidated AWR and Golden State Water. We are considering a separate credit facility for Golden State Water to allow for a separate credit rating and possibly improve the rating outlook for our flagship water utility. While lining up two credit facilities instead of one takes a little longer time, we believe that the company's sound capital structure and the A-plus credit ratings for American states and Golden State waters, combined with its financial discipline and history and relationship with lenders, will enable us to access the debt market and put in place a new credit facility with reasonable terms. We anticipate the existing credit agreement will be terminated at an earlier date when it's superseded by the new agreement. At this time, we do not expect the American state water to issue additional equity for at least the next 18 to 24 months to fund its current businesses. We will continue to assess the need for equity assurance And even when a decision is made to issue equity, we plan to raise capital over time. We will consider doing an ad market offering that enables AWRs to control the timing and size of sales of its common shares over several years. With that, I'll turn the call back to Bob.